Buyback is an important provision related to Share Capital of a company. We discussed provisions related to buyback under the Companies Act 2013 earlier here. In last post, we have discussed approval of the company through Special Resolution for buyback.
Rule 17 of the Companies Act set out norms for buyback of securities by the private companies and unlisted public companies. Rule 17 shall read with Section 67 – 70 of the Companies Act 2013.
Letter of Offer:
The letter of offer shall be dispatched to the shareholders or security holders immediately after filing the same with the Registrar of Companies but not later than twenty days from its filing with the Registrar of Companies.
The offer for buy-back shall remain open for a period of not less than fifteen days and not exceeding thirty days from the date of dispatch of the letter of offer.
In case the number of shares or other specified securities offered by the shareholders or security holders is more than the total number of shares or securities to be bought back by the company, the acceptance per shareholder shall be on proportionate basis out of the total shares offered for being bought back.
The company shall complete the verifications of the offers received within fifteen days from the date of closure of the offer and the shares or other securities lodged shall be deemed to be accepted unless a communication of rejection is made within twenty one days from the date of closure of the offer.
The company shall immediately after the date of closure of the offer, open a separate bank account and deposit therein, such sum, as would make up the entire sum due and payable as consideration for the shares tendered for buy-back in terms of these rules.
The company shall within seven days of completion of verification:
(a) Make payment of consideration in cash to those shareholders or security holders whose securities have been accepted; or
(b) Return the share certificates to the shareholders or security holders whose securities have not been accepted at all or the balance of securities in case of part acceptance.
Conditions for Letter of Offer:
The company shall ensure that—
(a) The letter of offer shall contain true, factual and material information and shall not contain any misleading information and must state that the directors of the company accept the responsibility for the information contained in such document;
(b) The company shall not issue any new shares including by way of bonus shares from the date of passing of special resolution authorizing the buy-back till the date of the closure of the offer under these rules, except those arising out of any outstanding convertible instruments;
(c) The company shall confirm in its offer the opening of a separate bank account adequately funded for this purpose and to pay the consideration only by way of cash;
(d) The company shall not withdraw the offer once it has announced the offer to the shareholders;
(e) The company shall not utilize any money borrowed from banks or financial institutions for the purpose of buying back its shares; and
(f) The company shall not utilize the proceeds of an earlier issue of the same kind of shares or same kind of other specified securities for the buy-back.
Register of Bought – back Securities:
The company shall maintain a register of shares or other securities which have been bought-back in Form SH – 10.
The register of shares or securities bought-back shall be maintained at the registered office of the company and shall be kept in the custody of the secretary of the company or any other person authorized by the board in this behalf.
The entries in the register shall be authenticated by the secretary of the company or by any other person authorized by the Board for the purpose.
Return of Buyback:
The company, after the completion of the buy-back under these rules, shall file with the Registrar, and in case of a listed company with the Registrar and the Securities and Exchange Board of India, a return in the Form SH – 11 along with the fee.
Certificate of compliance in Buyback:
There shall be annexed to the return filed with the Registrar in Form No. SH – 11, a certificate in Form SH – 15 signed by two directors of the company including the managing director, if any, certifying that the buy-back of securities has been made in compliance with the provisions of the Act and the rules made there under.06
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